An Organization's Mission and Strategic Intent

Readings for the Assignment

Strategic Management

Strategic management begins with strategic thinking. The main questions to ponder are:

· Where are you now?

· Where do you want to go?

· How will you get there?

It is essential to answer these questions before creating a strategic plan. Strategic management involves five tasks:

· Defining the business—stating the mission and creating a strategic vision

· Setting measurable objectives

· Devising a strategy to achieve stated objectives

· Implementing and executing the strategy

· Evaluating performance

The strategic management process comprises all commitments, decisions, and actions required to achieve strategic competitiveness and earn above-average returns. The strategic management process is used to match the conditions of a dynamic and competitive market with the company's dynamic resources, capabilities, and core competencies.

Strategic actions taken to achieve and maintain strategic competitiveness demand the best efforts of managers, employees, and their organizations on an ongoing basis. One effective way to engage managers and employees is to involve them in the process from the very beginning. When all the involved parties share the company's vision, the chances for achieving and sustaining competitive advantage are greatly increased.

A good example of this strategy is Roadway Express, a freight transportation and delivery company. The management of Roadway Express knew that if they wanted to increase their profitability, they needed to create a strategic plan that was actionable. In order to have an actionable plan, they needed the support and interest of both managers and employees. The management hired a consultant to help design a process that would involve their managers and employees in creating a strategic management plan. After determining the method of engagement, Roadway Express began to gather success stories, best practices, and ideas for the future of the company from employees and managers. By the end of this process, the management obtained full support and were on their way to creating a shared vision and a sound strategic management plan. Roadway Express soon becomes a leader in the trucking industry with the motto Dedicated to Better Service (YRC Freight, 2013).

Reference:

SUO. (2014). MGT4070: strategic management: Week 1: strategic management. Retrieved from

http://myeclassonline.com

The External Business Environment

Strategic intent refers to leveraging a firm's resources, capabilities, and core competencies to accomplish the firm's goals of achieving competitive advantage. For strategic intent to exist, all employees, including management, should be committed to the goals and objectives of the firm. Strategic intent is a company's ideal of what it wants to achieve in the long term.

A firm's understanding of the external environment, when matched with its internal environment, forms its strategic intent. Strategic intent in turn develops the strategic mission, and enables the firm to take actions that result in strategic competitiveness and above-average returns.

External environment conditions in the current global economy differ from those faced by firms earlier for the following reasons:

· Technological changes and growth of information gathering and processing capabilities demand faster competitive actions and responses.

· Rapid sociological changes in many countries affect labor practices and the nature of products demanded by increasingly diverse consumers.

· Governmental policies and laws also affect where and how firms may choose to compete.

· Deregulation and local government policies such as those in the global electric utilities industry affect not only the general competitive environment, but also strategic decisions of companies that compete globally.

External analysis involves scanning and evaluating various sectors outside the organization to identify positive and negative trends that may affect the company's performance. Positive trends are opportunities that may improve performance, and usually lead to new market opportunities. Negative trends are threats that may hinder the organization's performance. The organization is an open system that interacts with its external environment. Strategists can view the external environment from two perspectives:

· As a source of information for decision making: There is greater information uncertainty in a complex, fast-changing environment than in an environment that changes slowly.

· As a source of resources that are sought by competing organizations: If resources are hard to obtain and control, the environment becomes more uncertain.

General, Industry, and Competitor Environments

The general environment is composed of dimensions of the broader society that influence industries and firms. These dimensions are grouped into six environmental segments. Within each segment, elements that a firm might analyze are:

· Demographic

· Economic

· Political or legal

· Sociocultural

· Technological

· Global

Firms cannot directly control the general environment's segments and elements. Therefore, successful firms gather the information required to understand each segment and its implications prior to selecting and implementing appropriate strategies.

Demographic Segment

Demographic segments or elements are analyzed on a global basis because of their potential effects across countries' borders and because so many firms compete in global markets. Demographic segment takes into account the following:

· Population size

· Age structure

· Geographic distribution

· Ethnic mix

· Income distribution

Economic Segment

The health of a nation's economy affects individual firms and entire industries. In light of this, companies study the economic environment to identify changes, trends, and their strategic implications. Economic segment takes into account the following:

· Inflation rates

· Interest rates

· Trade deficits or surpluses

· Budget deficits or surpluses

· Personal savings rate

· Business savings rate

· Income distribution

Political or Legal Segment

This segment is the environment in which organizations and interest groups vie for attention, resources, and for a voice in overseeing the body of laws and regulations that guide the interactions among and within nations. Political or legal segment considers the following:

· Antitrust laws

· Taxation laws

· Deregulation philosophies

· Labor laws

· Educational philosophies and policies

Sociocultural Segment

This segment is concerned with a society's attitudes and cultural values. The fact that attitudes and values form the cornerstone of society means they often drive demographic, economic, political or legal, and technological conditions and changes. Sociocultural segment considers the following:

· Women in the workforce

· Workforce diversity

· Attitudes about the quality of work life

· Concerns about the environment

· Shifts in work and career preferences

· Shifts in preferences regarding product and service characteristics

Technological Segment

The technological segment includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials. Technological segment considers the following:

· Product innovations

· Focus of private- and government-supported research and development (R&D) expenditure

· Applications

· New communications technologies

Global Segment

This final segment includes relevant new global markets, existing markets that are changing, international political events, and critical cultural and institutional characteristics of global markets. Global segment considers the following:

· Important political events

· Critical global markets

· Newly industrialized countries

· Cultural and institutional attributes

Although firms cannot directly control general environment segments, they can gather information about each segment and its implications on the selection and implementation of appropriate strategies. The irony is that while most firms have little individual effect on the US economy, the economy has a major effect on a firm's ability to operate and even exist in the marketplace.

For example, if you were to think about recent social trends and their impact on marketing of companies, you might recall L'eggs' decision to eliminate the "egg" they used to house stockings in (Creager, 1992). The company made this decision to make the packaging more environmentally friendly in response to changing values of society. Another example of industry responsiveness to societal values is the technology industry. For a major segment of the population, time is money. In the effort to multitask and save time, we increasingly rely on cell phones and laptop computers so that we can travel and work simultaneously. While some may say that is it bad for society, understanding and responding to social trends can lead to the creation of innovative products that increase efficiency, help us become environmentally safe, and sometimes even save our lives.

Refer to the Webliography of this course to learn more about how global markets affect businesses.

The external environment is highly turbulent, incredibly complex, and global in nature. This makes understanding and interpreting the environment extremely difficult. This is the challenge that most companies face. Given the complicated, ambiguous, and often incomplete environmental data, firms have no choice but to engage in a process called external environment analysis. This process, which is constant and ongoing, involves four activities:

· Scanning: Identifying early indicators of environmental changes and trends

· Monitoring: Detecting meaning through ongoing observations of environmental changes and trends

· Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends

· Assessing: Determining the timing and importance of environmental changes and trends for firms' strategies and their management

Let us now discuss each of the four activities that make up the process of external environment analysis.

Scanning

Scanning refers to the study of all segments in the general environment. Scanning enables companies to identify early indicators of potential changes in the general environment and ongoing changes. In the scanning process, the data is usually ambiguous, incomplete, or not directly relevant to the company. For firms that work in highly competitive and volatile environments, environmental scanning is essential. Firms also need to scan other companies. It is not a good idea for a stable company to scan a highly volatile company because the data they uncover will not be applicable to its strategic planning process, and may in fact be detrimental to its growth.

Monitoring

In the monitoring process, analysts observe environmental changes to determine important trends that were spotted in the scanning phase. To monitor successfully, a firm should be able to detect meaning in environmental events and trends.

Forecasting

Scanning and monitoring focus on events and trends in the general environment at a point in time. In the forecasting phase, analysts develop feasible projections of what might happen and how quickly, as a result of the changes and trends detected during scanning and monitoring. For example, analysts may forecast the time it will take for the auto industry to saturate the market with hybrid cars or the time it will take for the housing market to slow down when interest rates increase.

Assessing

Assessing determines the timing and significance of the effects of environmental changes and trends on the strategic management of a firm. Scanning, monitoring, and forecasting enable analysts to understand the general environment. Assessing goes one step further in that it enables analysts to specify the impact of the general environment on the company. When a company expands without assessing the scanning, monitoring, and forecasting data obtained from external environment analysis, the chances for success are limited, despite its excellent products.

Reference:

SUO. (2014). MGT4070: strategic management: Week1: the external business environment. Retrieved

from http://myeclassonline.com

Industry Environment Analysis

An industry comprises several firms that produce and sell products, which may be similar in function and value, and therefore close substitutes. It is likely that these firms will have an influence on one another through their competitive strategies to gain strategic competitiveness and earn above-average returns. The strategies selected by the industries are in line with the characteristics of the industry. If the characteristics of the industry change as a result of external environment issues, it can have a direct effect on the general health of a firm.

For example when the overall health of the economy declines, both companies and consumers are affected. When the economy is slow, consumers become money conscious and spend less, and company revenues decline. When company revenues decline there is less money for firms to spend on R&D and the creation of new and improved products. In industries where innovation and rapid response to change is the hallmark of gaining competitive advantage, the external environment can effect a negative change in the industry. Companies within an industry that do not have the strength or resources to survive such an impact may cease to exist. The computer industry and the entertainment industry are two examples of such vulnerable industries.

More than the general environment, the industry environment has a direct effect on a firm's strategic competitiveness and above-average returns.

Michael Porter, a Harvard professor and world-renowned author and strategist, says, "Southwest Airlines, for example, has focused on a strategy of serving price-minded customers who want to go from place to place on relatively short, frequently offered flights without much service. This strategy has remained consistent over the years. But Southwest Airlines has been extremely aggressive about assimilating every new idea possible to deliver on that strategy. Today it does many things differently than it did 30 years ago—but it's still serving essentially the same customers who have essentially the same needs.

The error that some managers make is that they see all of the change and all of the new technology out there, and they say, 'God, I've just got to get out there and implement like hell.' They forget that if you don't have a direction, if you don't have something distinctive at the end of the day, it's going to be very hard to win. They don't understand that you need to balance the internal juxtaposition of change and continuity" (Hammonds, 2001).

Since the events of September 11, 2009, air travel faces many problems. Some airlines such as Southwest Airlines continue to grow, and others such as United Airlines and American Trans Air (ATA) Airlines have filed for bankruptcy.

Porter developed a model for industry analysis, called Porter's Five Force Model of Industry Analysis (Mindtools.com, n.d). Porter argues that five forces influence industries. Managers who want to build an edge over competitors can use this model to better understand the context in which they operate within the industry.

Let's now discuss each of the five forces of Porter's model.

Threat of New Entrants

· New entrants can pose a threat to existing firms. It is often difficult for companies to identify new entrants that pose threats.

· New entrants can bring additional production capacity to an already fully functioning industry, thereby taking away market share from existing competing companies.

· If the demand for a particular good or service does not increase, a new entrant into the industry will only serve to hold consumer's costs down, which results in low revenues and low returns for competing companies.

There are two factors that impact the likelihood of a firm entering an industry.

· Barriers to entry

· Retaliation expected from current industry participants

Barriers to entry are often imposed externally and driven by the global economy. For example, with rise in industry profits, new entrants enter the field. The arrival of new entrants in an industry drives prices down, because product supply outweighs demand. This in turn reduces profits for all the firms in the industry, which leads to one or more entrants leaving the industry. Falling prices or the expectation of falling prices is a strong deterrent to potential new competition.

Retaliation from current industry participants can be expected when existing firms swiftly respond to market conditions. This type of response can also reduce the likelihood of entry by new firms.

Bargaining Power of Suppliers

Increasing prices and decreasing quality of products are methods used by suppliers to exert power over competing firms in an industry. This can negatively impact a firm's ability to recover its cost of supplies through its pricing structures, leading to lower profitability. A group of suppliers can be powerful under the following conditions:

· If the supplier group is controlled by a few large companies and is more concentrated than the industry to which it sells—for example, drug and healthcare companies.

· If the customers are powerful—for example, consumers can boycott grocery stores that sell nonunion picked grapes.

· If there is significant cost involved in switching suppliers—for example, Microsoft's relationship with personal computer (PC) manufacturers.

Bargaining Power of Buyers

Buyers want to buy products at the lowest possible prices, and firms seek to maximize returns on their investments. When customers get what they want, the companies that supply the products earn the lowest acceptable rate of return on their investment. To lower their costs, buyers bargain for higher quality, greater levels of service, and lower prices. This is accomplished by encouraging competitive battles among the industry's firms. Buyers are powerful under the following conditions:

· If they purchase a significant portion of the industry's total output

· If they threaten to switch to another product for little or no extra cost

· If the industry's products are standardized and the buyers integrate backward into the sellers' industry

Buyers increase their power by using various distribution channels to purchase products at similar or lower prices. The Internet, outlet stores, shopping clubs, and large retailers offer consumers high quality goods at prices that consumers are willing to pay.

Threat of Substitute Products

Substitute products pose a threat to firms whose goods consumers use or buy. For example, aluminium foil or plastic wrap was traditionally used to cover leftover food prior to being stored in the refrigerator or the kitchen cabinet. Later, people began using plastic containers to store food and other items. Similarly, e-mail has replaced the postal delivery system to a large extent. Today, fewer stamps are bought and fewer items are processed through government post offices. Overnight delivery has also affected the postal system since companies can move their products quickly and efficiently using overnight delivery services. Fax machines have also impacted the mail services since information can be sent over the airwaves for pennies instead of dollars.

Intensity of Rivalry among Competing Firms

What one firm does, others attempt to do the same. Competitive rivalry among firms is intensified when a firm recognizes an opportunity to gain a better market position. Firms spend time and money on differentiating themselves in ways that consumers value—price and quality—and lend competitive advantage, for example, through innovation. Although the action is reflected outward, it is the internal environment that enables a company to compete in price, value, and innovation.

Internal Environment

The internal environment of a company includes resources, capabilities, and core competencies of the firm. In the global economy traditional factors such as financial resources, raw materials, and regulated or protected markets continue to be sources of competitive advantage, but to a lesser degree. The primary reason for this decrease in impact is that the advantage gained by these traditional sources can now be gained by developing an international strategy and by the ease of flow of resources throughout the global economy.

The move from more traditional sources of competitive advantage to sources that encompass the international market creates a need to identify new and additional sources of competitive advantage within a firm. It also requires a firm to analyze its resources and capabilities. In order to make effective strategic decisions on how to use its resources and capabilities, a firm needs to understand that change is necessary. Fostering an organization that is open to change requires managerial support and an understanding that experimentation and learning is a viable way to determine which actions to take that will enable the organization to achieve its objectives.

There are numerous examples of companies who resisted change and by doing so saw their profits and sales decline over time. A good example is Levi Strauss. The company refused to sell its jeans through Wal-Mart, under the impression that it would diminish the value of their brand. Between 1996 and 2002, Levi Strauss lost 43 percent of its sales revenue, and in desperation, the company decided to introduce one line of their jeans through Wal-Mart stores (Girard, 2003).

Change requires a managerial mindset that focuses on global aspects of competition and competitive advantage.

Managerial Decisions on Resources, Capabilities, and Core Competencies

The following factors affect managerial decisions related to the internal environment of a company:

· Uncertainty regarding the characteristics of general and industry environments, competitors' actions, and customer preferences

· Complexity regarding interrelated causes that shape a firm's environment and perceptions of the environment

· Intraorganizational conflicts among people who make managerial decisions and those affected by these decisions

The above factors require managers to use their judgment when making decisions. Judgment in this context is the capability of making successful decisions when no obviously correct model or rule is available or when relevant data is unreliable or incomplete. Managers should be willing to take intelligent risks in a timely manner. In the twenty-first century landscape, executive judgment is often an important source of competitive advantage.

For example, Dan Carp of Kodak exhibited a high level of executive judgment and strategic intent during times of declining revenues for the company (Weissmann, 2012). He is an excellent example of a leader who is open to change and experimentation and who fostered an organization that values these qualities. When Kodak lagged behind technological advances in digital imaging, Dan Carp realized that the company needed to change direction and risk failure in order to regain its former stature in the industry. He faced great odds, not only from his competitors but also from his own shareholders. After a tumultuous period, he prevailed and Kodak now offers one of the best-selling digital cameras in the market.

Reference:

SUO. (2014). MGT4070: strategic management: Week 1: industry environment analysis.

Retrieved from http://myeclassonline.com

Core Compentencies

Resources, Capabilities, and Core Competencies

Resources, capabilities, and core competencies are the building blocks of competitive advantage. Resources are the source of a firm's capabilities, and capabilities are the sources of a firm's core competencies.

Resources

Resources include a range of individual, social, and organizational phenomena. Competitive advantage is not based only on resources, but also on a unique bundling of several resources. A company that can bundle resources has the capacity to not only gain competitive advantage but also dominate the market for as long as it can sustain. Amazon.com is a good example. Amazon combined service and distribution resources to develop one of the largest distribution networks through which it ships millions of items to millions of customers. Many companies have tried to imitate Amazon but have not succeeded.

A firm's resources are both tangible and intangible. Tangible resources are assets that can be seen and quantified, such as production equipment, manufacturing plants, and formal reporting structures. Intangible resources are assets that are usually rooted deeply in the firm's history and accumulated over time. Intangible resources are woven into the fabric of a firm and embedded in unique patterns of routines. Therefore, it is difficult for competitors to analyze and imitate these resources. Examples of intangible resources are knowledge, trust between managers and employees, ideas, the capacity for innovation, managerial capabilities, work processes, scientific capabilities, the firm's public and private reputation, and the firm's relationship with stakeholders.

Tangible resources

A firm's borrowing capacity and the condition and status of its plant and equipment are visible assets. The value of many tangible resources can be documented in financial statements. However, financial statements do not account for the value of all the assets of a firm because they don't reflect all the intangible resources. The key tangible resources of a firm are:

· Financial resources:

· The firm's borrowing capacity

· The firm's ability to generate internal funds

· Organizational resources:

· The firm's formal reporting structure and its formal planning, controlling, and coordinating systems

· Physical resources:

· Sophistication and location of a firm's plant and equipment

· Access to raw materials

· Technological resources:

· Stock of technology, for example, patents, trademarks, copyrights, and trade secrets

Tangible assets alone cannot create competitive advantage. For example, a train or an airplane is a tangible resource but you can't use the same train or airplane on multiple routes simultaneously and you can't use the same work crew on multiple routes simultaneously. Production assets may be tangible but many of the processes that use these assets are intangible.

Intangible Resources

Intangible resources are a superior and more potent source of core competencies. In the global economy, the success of a corporation lies more in its intellectual and systems capabilities than in its physical assets. In addition, the capacity to manage human intellect and convert it into useful products and services is fast becoming the critical executive skill of the age. Although it is difficult to measure the value of intangible assets such as knowledge, it is acknowledged that the value of intangible resources is growing relative to that of tangible assets. The key intangible resources of a firm are:

· Human resources:

· Knowledge

· Trust

· Managerial capabilities

· Organizational routines

· Innovation resources:

· Ideas

· Scientific capabilities

· Capacity to innovate

· Reputational resources:

· Reputation in the eyes of customers and suppliers

· Brand name

· Perceptions of product quality, durability, and reliability

· Efficient, effective, supportive, and mutually beneficial interactions and relationships

Capabilities

Capabilities refer to a firm's capacity to use resources that are integrated to achieve a desired outcome. Capabilities emerge over time through complex interactions among tangible and intangible resources. Capabilities are the glue that binds an organization and are critical to the creation of competitive advantage. Capabilities involve developing and exchanging information and knowledge through the firm's human capital—employees. The knowledge base is grounded in organizational actions and employees may not explicitly understand these actions, so repetition and practice serve to increase the value of a firm's capabilities.

Core Competencies

Core competencies are resources and capabilities that serve as a source of a firm's competitive advantage over its rivals. Core competencies distinguish a company and reflect its personality. Similar to capabilities, core competencies emerge over time through an organizational process of accumulating and learning how to use various resources and capabilities. Given that core competencies provide a firm the capacity to take action, the activities a firm performs especially well compared to its competitors adds value to its goods or services over a long period of time. Core competencies are considered the crown jewels of a company.

Reference:

SUO. (2014). MGT4070. strategic management: Week 1: core compentencies. Retrieved from

http://myeclassonline.com

This book: http://digitalbookshelf.southuniversity.edu/books/9781305217188/outline/

These chapters from the book:

http://digitalbookshelf.southuniversity.edu/books/9781305217188/outline/1

http://digitalbookshelf.southuniversity.edu/books/9781305217188/outline/2

http://digitalbookshelf.southuniversity.edu/books/9781305217188/outline/3